Nichols: Devon well-placed to weather downturn

Devon Energy Corp. CEO Larry Nichols said Wednesday the company is reducing its natural gas drilling in the short-term until gas prices start to rebound.

"We see absolutely no reason to continue to drill at this time and bring natural gas production on at this time, any more than we need to," Nichols said at the company's annual shareholders meeting. "It's better to leave that gas in the ground and sell it next year, or in future years, when we can generate a greater profit for our shareholders."

Devon has reduced its exploration and development capital budget to between $3.5 billion and $4.1 billion this year from $8.5 billion in 2008.

Nichols said that 2009 continues to be a challenging year for the industry but that the largest U.S. independent oil and natural gas producer is well-placed to weather the economic downturn.

"While last year was a great year, this year is a tough year," Nichols said, citing a steep decline in oil and natural gas prices during the second half of 2008.

Oil prices have doubled since March with some signs that the worst of the recession may be over and were hovering around $66 a barrel Wednesday afternoon on the New York Mercantile Exchange. Natural gas for June delivery tumbled 36.2 cents to $3.758 per 1,000 cubic feet after peaking last summer at $13.69 per 1,000 cubic feet.

Nichols said that natural gas prices will take longer to recover than will oil prices because of the current oversupply of natural gas.

At the end of 2008, Devon had 2.4 billion barrels of oil equivalent of proved reserves and an enterprise value of $35 billion. Devon's production increased by 6 percent last year, when it recorded $13.1 billion in oil and natural gas sales.

For all of 2008, Devon has reported a loss of $2.15 billion, or $4.85 per share, on a 33 percent rise in revenue to $15.21 billion.

Nichols said Devon has cash and unused credit lines totaling about $2.7 billion and will have no significant debt maturities until 2011.

"We are really in exceptionally good shape," he said.

Devon, which was started in 1971 and went public in 1988, holds major stakes in two potentially large oil fields in Alberta and the Gulf of Mexico. Devon's Jackfish project in the oil sands in Alberta could potentially yield 100,000 barrels of oil a day "for decades to come," Nichols said.

Devon also is the largest stakeholder in the Barnett Shale, a large natural gas field in north Texas. The company has 4,000 producing wells in the shale and "we've yet to drill a dry hole," he said.

During the meeting, shareholders re-elected four company directors _ Nichols, Robert L. Howard, Michael M. Kanovsky and J. Todd Mitchell _ for two-year terms and ratified the appointment of another director, Robert A. Mosbacher Jr., for a two-year term.